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04 February 2015 Attention: Hon. Ebrahim Patel Minister of Economic Development Dear Minister, RE: On Why South Africa Needs Conditional Access We write to you concerning the implementation of Cabinet’s decision of 4 December 2013 concerning conditional access/set-top box encryption. Of particular relevance to your Ministry are the implications of the exclusion of conditional access/set-top box encryption from the government manufactured STB on competition in the broadcasting market economy, and the consequent impact on both the national public broadcaster and the people of South Africa. Minister, the delay in the commercial launch of the broadcasting digital migration project for over seven years has enabled a subscription broadcasting service licensee with significant market power to double its penetration into the South African market to 5 million subscribers out of the 11 million TV-owning households in the country. Our view is that in its opposition to the inclusion of a conditional access system in the government manufactured set-top boxes, this same licensee is campaigning to limit the ability of existing and, especially, entrant broadcasting service licensees to compete fairly. There is extensive evidence that new entrants in the South African Pay-TV market will struggle to survive given the market dynamics precipitated by the significant market share held by this subscription broadcasting service licensee. The failure of On Digital Media’s short-lived Top-TV subscription

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broadcasting service is a trite but singularly notable example of what little prospects entrant licensees have under the prevailing conditions in the broadcasting landscape. We have previously outlined, to some detail, the benefits that the inclusion of a conditional access system in the government manufactured set-top box can bring for both the broadcasting market economy and, most importantly, the people of South Africa. These include, but are not limited to:

x Real access to the subscription broadcasting service markets for entrant broadcasting service licensees.

o Licensees would not be required to risk prohibitive sunk costs in order to gain entry to a hostile and anti-competitive broadcasting environment characterised by the de facto monopoly held by one licensee, thus progressively leveling the playing field.

x A platform that enables interoperability, thereby stimulating competition. o The inclusion of a conditional access system in the government

manufactured set-top box allows for a single technological platform (the set-top box) to receive multiple free-to-air and subscription broadcasting services. Consumers are, therefore, no longer locked into a single service as a result of investing in a particular kind of technological platform, and broadcasting service licensees have to compete more robustly for audiences and subscribers.

x The ability for existing and entrant broadcasters to compete for premium content on equal terms.

o In the broadcasting industry, a licensee’s ability to acquire current, high quality, premium content (which include new release international films, popular series and sporting content) is significantly determined by the broadcasting licensee’s ability to encrypt its signals. Technologies like conditional access open the door for existing and entrant licensees to competitively bid for such content and begin neutralising the market distortions created by the prevailing de facto monopoly we see today.

Minister, it is for these reasons that the inclusion of a conditional access system in the government manufactured set-top boxes is of significant relevance to your portfolio. We believe that government, and your Ministry in particular, must take radical steps to enable a pro-competitive broadcasting market economy, especially now when we establish the terms of engagement in the new digital broadcasting market space. Specific interventions we believe you can take to do this include, but are not limited to:

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x Recommitting to the Cabinet decision of 4 December 2013 which provides

for the inclusion of conditional access in the government manufactured set-top boxes, and encouraging the implementation of the decision in policy; and

x Draw the Competition Commission’s attention to the desperate need for an inquiry into the market dynamics of the broadcasting market economy with particular emphasis on issues pertaining to:

o the implications of the inclusion of conditional access to government manufactured set-top boxes on the broadcasting market economy, including impact on consumers.

o access to premium content and the sale of distribution rights. o defining significant market power in the broadcasting market

economy. o other limitations on access to content.

Minister, we urge you to take serious consideration of our letter to you in realising our shared vision for a broadcasting environment that works for the people of South Africa. Yours Sincerely, __________________ Sekoetlane Phamodi Coordinator: SOS: Support Public Broadcasting

______________________ Loren Braithwaite-Kabosha CEO: South African Communications Forum